Investing In Stocks

Generally, stocks are divided among various categories. At the top are the stocks
issued by large, well-established companies, often called blue chip or large-capitalization
(large cap) stocks. Below are stocks issued by smaller companies, often divided
by their size or market capitalization into mid-cap and small-cap stocks. Growth
stocks are those with the potential to grow quickly in both revenues and profitability,
but perhaps without the proven track record more established companies have. Some
may be large and even market-leading companies in their industries, but with plans
to dramatically expand their businesses. Value stocks are those that analysts
feel are selling for less than the company is really worth.

Stocks can also be divided into domestic stocks (those issued by U.S. companies)
and international stocks. You can also divide your money among various sectors
of the market, such as technology, communication, healthcare, energy, financial
services, consumer goods and basic materials, each of which may respond differently
to economic changes.

Risk vs. Return for Stocks

Over the short term, investing in the stock market can pose quite a risk. After
all, the market's history includes such events as the Crash of 1929 and the
Depression that followed, the bear market of 1972 through 1974, and the tumble
of October 1987. More recently, we saw steep but mainly temporary declines from
July through October 1998, plus the housing crisis and stock market decline in 2008. Individual stocks face risks as well. A company,
because of poor business conditions or poor management, could become unable
to make dividend payments. Or it could fail, leaving your stock worthless. The
stock market can also be volatile, fluctuating because of events happening overseas,
rumors of economic changes, or a key investment advisor's pronouncement that
the market, some segment of it or a particular stock is overvalued.

Over the long term, however, stocks generally earn higher and more positive
returns than other financial investment. These higher returns often help offset
the risks of investing in stocks.

Stocks can yield two types of return: capital return and income return. Capital
return is when the market price of your investment -- a share of stock -- increases
or decreases from your original purchase price. Income return is the payments
-- dividends -- a company makes to its shareholders each year. Together, these
make up your stock's total return.

Diversification Can Minimize Investment Risk

Among the risks you face in the stock market is the risk that you will have
to sell an investment for less than you paid for it. If you buy stock in many
different companies, in many different sectors of the market, you can minimize
your risk. After all, it is highly unlikely that every company in which you
have invested will suffer at the same time.

You can also minimize your risk by investing some money in international stocks.
Historically, when the U.S. stock market has dropped, markets in Europe and
Asia have dropped less, or even risen in value. Although we live in an increasingly
global economy where economic events have an impact everywhere, global diversification
should still be a part of your plan.

Diversification does not protect against a loss or ensure a profit.

What Role Should Stocks Play In Your Portfolio?

In general, money you wont need for at least 10 years would be suitable
to be invested primarily in stocks. Certainly younger people investing for their
retirement should consider putting a substantial portion of their funds in stocks.

Investing in stocks may also be appropriate for retirees who dont need
all of their money and are trying to maximize what they will pass onto their
heirs. You should seek the advice of a qualified financial advisor to determine
the optimal amount you should allocate to stocks.

Ticket charges and brokerage account fees may also apply and should be carefully
reviewed before any transactions occur.

This article explains some general information about various types of investment
products. It is designed to initiate your interest and should not be taken as
a recommendation to invest in any specific direction. Complete information about
all the details of each type of investment needs to be considered before suitability
can be determined.

Investors must carefully consider the investment objectives, risks, liquidity,
charges and expenses, and possible surrender fees of any investment before committing
to an investment. This and other information can be found in the prospectus for the specific issue involved and should be
carefully read before investing. The prospectus
can be obtained from the individual company issuing the security, by calling
their respective office, or accessing their respective website. Your financial
professional can guide you where to find the contact information for each company.
A qualified registered securities representative can explain the specific characteristics
of each product and guide you in selecting the investments that are most suitable
for your specific needs.

Small and Mid-cap stocks may be subject to a higher degree of risk than more established companies' securities. The illiquidity of the small-cap market may adversely affect the value of these investments. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

This web site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. You may wish to consult a competent attorney, tax advisor, or accountant.